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TMI Blog2012 (6) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... hould propose a compromise or arrangement, which was not present here. The petitioners herein are not the actual propounders of the scheme so as to revive the company for the benefit of the company or its members. The petitioners being few among the investors for purchase of flats, thereby having become the creditors as they have not been allotted the flats have lent their names to a propounds who does not qualify under section 391 - Mere settling the outstandings of certain class of persons to the detriment of the company or its members is not the object. In any event, the recovery and disbursement would be done in the process of winding up - prayer made by the petitioners is therefore rejected. - CO. PETITION NO. 91 OF 2009 - - - Dated:- 21-3-2012 - A.S. BOPANNA, J. B. Aswathaiah and H.S. Sathish Kumar for the Petitioner. K.S. Mahadevan, V. Jayaram and M.B. Sujatha for the Respondent. ORDER 1. This petition under sections 391 to 894 of the Companies Act, 1956 (hereinafter referred to as 'the Act' for short) is filed seeking sanction of the scheme of arrangement (Annexure-C) in respect of M/s Hoysala Building Development Company (P.) Ltd. which is in liquid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditors and the shareholders. The correctness and validity of the scheme would however not be considered at that stage since the law laid down by the Hon'ble Supreme Court in the case of Rainbow Denim Ltd. v. Rama Petrochemicals Ltd. [2003] 116 Comp. Cas 640 is that the validity of the scheme would be considered by the High Court only after the consideration and approval of the scheme by the shareholders and the creditors. Hence, the validity of the proposed scheme in the background of the events which have unfolded in the instant case requires to be considered by this Court in this petition. 6. The manner in which the instant ease has proceeded would throw up several inconsistencies which have to be noticed since the same would be relevant for the purpose of considering whether the scheme is bona fide in relation to the revival of the company and whether the actual propounder of the scheme is entitled to do so keeping in view the provision contained in section 391 of the Act. 7. The provision contained in section 391 of the Act would indicate what is provided for is any compromise or arrangement to be proposed between the company or any creditor or any member of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent Nos. 2 to 5 has been incorporated. The order dated 27-10-2010 passed by this Court in CA No.660/2010 in the instant petition permitting the said amendment would disclose that this Court had taken note of the fact that the original petitioner No.2 (Sri Varaha Venkatesh) is neither a shareholder nor creditor nor worker of the company but had come forward to extend financial support to the first petitioner for implementation of the scheme of arrangement. The applicants in the said application i.e. , petitioner Nos. 2 to 5 herein have proposed to come on record in place of the second petitioner and in that context, the application was allowed. This aspect of the matter is also relevant. 10. Technically, the petitioners herein who are seeking sanction of the scheme being the creditors no doubt constitute one of the categories contemplated in section 391 of the Act. However, to understand the very scheme itself and to decide the acceptability, the manner in which it has been proposed and the part to be performed by the propounder in reviving the company requires to be noticed. The basis on which the propounders of the scheme had approached this Court in CA. No. 1074/2008 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 391 of the Act having propounded the scheme as the same is not permissible in law. It is no doubt true that the money to be brought in by such person would be beneficial to a class of creditors inasmuch as they would receive the amount due from the company but the question is whether such scheme is in compliance of law and whether this Court can grant its seal of approval unmindful of the interest of the company or the shareholders and above all, if it is contrary to public policy. 12. In fact, a similar scheme had arisen for consideration before this Court in the case of Sri Kashinath Dikshit v. Surgicals Pharmaceuticals Company (Mysore) Limited [2003] AIR Kar. HCR (NOC) 55, except that the first petitioner therein was a shareholder. In the said case, the relevant contention (which is similar to the instant case) while opposing the scheme was as hereunder: "10. The official liquidator attached to this Court has filed his objections opposing the scheme of arrangement propounded by the petitioners. Apart from others, the primary objection of the official liquidator seems to be that though the first petitioner is a member of the company in liquidation is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editors or any class of them, or between the company or its members or class of them should propose a compromise or arrangement. When such a scheme is proposed, and the sanction is requested, the Court will have to be satisfied as to the prima facie , that the scheme of arrangement is genuine, bona fide and would be in the interest of the company and its creditors and the application is filed by a person, who is authorised under the provisions of section 391 of the Act. The Apex Court in the case of S.K. Gupta v. K.P. Jain reported in [1979] 49 Comp. Cas. 342, while considering the scope of section 391(1) of the Act and who can move the application under that section was pleased to observe: "Section 391 enables a member or a creditor of the company or a company which is being wound up, its liquidator, to make an application to the court proposing a compromise or arrangement between the company and its creditors or any class of them or between the company and its members or any class of them and seeking directions of the Court to convene a meeting of each class of creditors and/or each class of members to whom the compromise or arrangement is offered. On the Court's giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of propounding a scheme nor will the Court assume the role of an Appellate Authority to modify the scheme except to examine the validity. In order to examine whether the deletion of Sri Varaha Venkatesh and the impleadment of the petitioner Nos. 2 to 5 has made any difference to the scheme as propounded, a perusal of the petition would demonstrate that except the amendment to the cause-title and incorporating the words 'petitioner Nos. 2 to 5' wherever the words 'second petitioner' existed, there is no indication as to the manner in which the present petitioners have propounded the scheme. The petition indicates that in para 14, the earlier resolution passed in the meeting of the creditors had been extracted. In the extracted portion, the resolution of the meeting of the creditors was to authorise Sri S. Krishnamurthy and Sri Varaha Venkatesh. Strangely, the resolution passed elsewhere, but only extracted in the petition has also been amended in the petition by deleting the name of Sri Varaha Venkatesh and the names of petitioner Nos. 2 to 5 have been incorporated therein though the fact is that no such resolution was passed. 16. Be that as it may, the scheme with reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany had undertaken to construct the apartment in Sy.No.79/4, III Block, Jayanagar, Bangalore by entering into an agreement to purchase the land from one Sri Shankar Reddy under the agreement dated 26.1.1981. However, the construction is stated to have been put up in Sy.No.79/5B regarding which a claim is raised by Sri Narayan and others. Undisputedly, that has resulted in civil litigation and the matter is presently stated to be pending before the Hon'ble Supreme Court. The ultimate result in the litigation or any understanding with actual owner would decide the fortunes of the Company-in-liquidation. Hence, the revival of the company is also mired in uncertainties and the pointer therefore is to the speculative business interest of the original propounder which becomes relevant. Even in respect of the half constructed building belonging to the company, the order sheet dated 28.5.2010 in this proceedings indicates that the valuer appointed by this Court has valued it at Rs. 21,86,00,000/- and on 4-6-2010, the counsel for Official Liquidator has submitted the said value represents only that of the building and not land. 19. All the above aspects and the perusal of the scheme (A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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